Friday, July 23, 2010

Betting on information from people who supposedly have the inside story on a company is extremely dangerous.

Everyone has an opinion and chances are they do not have all the facts. In our experience, trading on tips from these "reliable" sources have always given the same results: Loss!

There is also "Your Brother-In-Law" theory, not highly recommended by anyone but followed all too often by many investors.

Your brother-in-law, or "some guy at work," tells you about a stock that is "really going to make you a lot of money." You know nothing about the stock but you rush out and buy a hundred shares nevertheless.

We think the right word for this group is "losers."

Would you buy a stock because an "expert" on TV or a paper says it is a great investment?

Chances are, they or their company own too much of this stock and need to get rid of it. It is called "Pump and Dump."

Pump up how great the stock is, then dump it when unwitting investors buy it because they think it is a great investment and it is really not.

We are not saying that every "great" stock that is mentioned on TV or in the papers is actually a dud; sometimes they really are high flyers, but we would not recommend to put your hard earned money on them just because some "brokerage firm" recommended them.

Would you invest in a stock because of a friend's tip?

It depends!

But before you decide, check out what he "really" knows about it, and do a thorough research of your own.

Would you place your trust and invest your hard earned money on rumors and street talk?

No!

While we do actually say "buy the rumor" and "sell the fact," on the other hand, how many times didn't the rumor just remained a worthless rumor?

Always try to get unbiased opinion and research work on individual stock. Ask yourself about the motive behind the "tip." This might save you from a lot of trouble. Besides, you don't need the "tip!" if you are aware of the fundamentals and believe in growth of the company.

All it takes to "beat the market" is commonsense thinking, plain good old time dealing and Patience.

Saral Gyan Capital Services

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